TWENTY-TWO STEPS TO FREE REAL ESTATE

By Bill J. Gatten, Author of ‘No Down!
No New Loan!’ And ‘Making it BIG in
Creative Real Estate and Keeping It…This
Time,’ and semi-nude Chip and Dale Dancer
(…yep the chipmunks)

The following is an open letter that I wrote to my cousin John, in Orlando Florida after his having informed me in an E-mail that there were over 6,000 foreclosures within a few miles of him, and suggesting that maybe I should move to Orlando (which I’d love to do, but there are 13,000 foreclosures where I live, and as of late, I’ve developed a real affinity for gang wars, graffiti and drive-by shootings).


Dear John,

Regarding those foreclosure opportunities, with your good looks and my brains, we could buy them up. We could partner on dozens and dozens of them.

Here’s the deal: I contact the sellers, run the ads screen the calls and then advertise for and screen the buyer calls with our toll-free Adtrakker lines and do all the documentation and collections. You need merely get the Foreclosure lists (once a week), pick out the acceptable areas, and head-up any refurbishment or repairs that might be needed There is no, or very little, cash out of pocket. Our resident beneficiaries pay for all of that.

Some of them we resell for cash, and some (most) we hold for old age (which is creeping up on me, John: I don’t even buy green bananas anymore, and I’m going through mucilage and Tucks like they were Diet Pepsi and Crepes).

OK, Here's how the ‘holding’ part works:

1. We create a Limited Liability Company to be funded on our first deal at the close of Escrow (the "Turko-Amazon Mining Co, a Nevada LLC" with you and me (or you’ns and us’ns) as co-members...you are the ‘managing’ member)

2. You obtain foreclosure data from the courthouse, or better yet, from a local FC publication (a few hundred buck a year)

4. I commence a five-piece mailing program to all distressed (foreclosed upon) homeowners, telling them that we buy houses for Full Price, All Cash or Terms, any condition (60%-65% of FMV is our full price offer which we get via a ‘hard money’ no qual loan: anything else would necessitate ‘terms,’ wherein the seller-carries and gets paid at the end of the trust).

5. I identify those distressed homeowners who are willing to deal with us (i.e., they are the only ones who answer my mailings. And when they call they get a recorded messages explaining exactly what we can do for them…if they’re interested, they then call my private toll-free 800 line)

6. I offer to take over their loan, bring the arrearages current (i.e., say, $5-6,000 or ?), get them out from under the property, and reestablish their credit with their lender

7. If they like what I have to say, we take a 30-45 Day Non-Exclusive Purchase Option from the homeowner (no option fee, no obligation…they can sell to anyone during the option period: but they have to give us a 10 days notice to exercise our option if they do get another offer)

8. We order and obtain a reinstatement quote from the lender

9. During the option term, I advertise for our resident beneficiary (buyer) via the newspaper and a hangman sign that you place on the property...the ad and the sign say: "No bank qual. No down payment. 3 pmts and clos. costs moves you in (e.g., which sum comes to, say, $10-11,000)."

10. Upon locating our buyer, we create a land trust to hold the property’s title (the homeowner being the ‘only’ beneficiary, at that point)

11. We open Escrow

12. We set our “Mutually Agreed Value” at 20% 30% or (?) ‘above’ what we owe on the mortgages(s) and/or any money owed to, and carried by, the former homeowner, if any.

13. The distressed owner leaves the property

14. We place the buyer's money into Escrow

15. We remit all sums necessary to bring the mortgage loan current (i.e., the $5-6,000)

15. We take an assignment of 90% of the beneficiary interest in the trust, with the other 10% remaining with the homeowner: which percentage will be forfeited to the LLC at the trust's termination (leaving the percentage with the borrower of record avoids open due-on-sale violation re. the existing financing, and avoids and transfer or conveyance tax or reassessment by the county…as the homeowner has only placed his property into an inter-vivos trust and has not relinquished more than 50% of the Power of Direction)

16. We now take a ‘Limited Power of Attorney’ from the former homeowner so that we can “vote” in his stead, directing the trustee on his/her behalf throughout the agreement (as far as he’s concerned, he sold the house and needn’t be involved in any day-to-day functions relative to it).

17. We next assign to our ‘resident beneficiary (our buyer)’ a 50% beneficiary interest in the trust (i.e., they then receive 100% of the benefits of homeownership, including income tax write-off, and 50% of the principal reduction and 50% of any future appreciation over the term): they get 100 of the bundle of rights in fee-simple real estate ownership, except for our half of the profit on sale.

18. We set the resident beneficiary’s monthly payments at, say, $100-$200.00 above what our actual payments are, and we set the Mutually Agreed Value (the amount above which profits will be shared) at some amount greater than what we got the property for.

19. At this point the trust leases the property to the resident beneficiary on a ‘triple-net’ lease basis for the term of the land trust (i.e., a full contractual obligation to pay the mortgage interest, property tax and insurance).

20. We then put the overage from Escrow into our LLC's bank account

21. The positive cash continues to flow to our LLC throughout the agreement, while the resident beneficiary pays all the bills and handles all maintenance, management and upkeep.

22. At the end of the (5, 7 10 or ? year) term, the property is sold for ‘Fair Market Value’: either to the resident beneficiary or to someone else (if the resident buys, he buys at FMV, MINUS the money owed to him from his 50% share in profits); and our LLC receives 100% of the [“bumped”] equity that we’ve been carrying from inception, and 50% of all net profits (which, when added to the up-front money we got in the beginning and our positive cash flow along the way, creates a nice incentive to do a whole bunch of these babies).

John! Free houses! They’re everywhere! They’re everywhere!

Your Next O’ Kin,

Cuz Bill

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